A World Bank Policy Research Working Paper 3429, October 2004, by Kenneth M. Chomitz, Timothy S. Thomas, and Antônio Salazar Brandão. ABSTRACT: A tradable development rights (TDR) program focusing on biodiversity conservation faces a crucial problem: defining which areas of habitat should be considered equivalent. Restricting the trading domain to a narrow area could boost the range of biodiversity conserved but could increase the opportunity cost of conservation. The issue is relevant to Brazil, where TDR-like programs are emerging. Current regulations require each rural property to maintain a forest reserve of at least 20 percent, but nascent policies allow some tradability of this obligation. This paper uses a simple, spatially explicit model to simulate a hypothetical state-level program. We find that wider trading domains drastically reduce landholder costs of complying with this regulation and result in environmentally preferable landscapes.